Nestle Case Analysis Essay

Introduction

This case first walks us through the journey of the launch of Refrigerated Pasta and Sauces by Nestle Refrigerated Food Company (NRFC) in the U.S. markets and then their decision to launch Refrigerated Pizza in 1990 based on various market researches carried out which have been described in detail. The company had previously been successful in capturing the market by launching refrigerated pasta and sauces in the markets. The launch of the Pasta and Sauces segment was accompanied by improving the shelf life of the earlier selling products in the U.S markets. The company purchased small local brands and their facilities to enter the new markets.

They invested in their up-gradation to make the products compete at the national and international levels thereby saving a lot of time in just developing the product from scratch in any new markets. This gave them the first-mover advantage and helped them capture the market. The refrigerated pasta was an immediate success with retail sales of over $75 million in 1988 and $150 million by 1990. Having tasted success in the refrigerated pasta segment, the company is now contemplating whether to enter the refrigerated pizza market.

Problem Statements

1. NFRC had conducted the marketing research and studies based on the following: a. NRFC is trying to launch the refrigerated pizza based on the BASES study conducted only in the high potential markets (Northern and eastern parts of US) whereas their target market was estimated to 95.5 mm throughout the nation. b. NFRC assumed that since users of Contadina pastas & sauces were aware of the brand, they could estimate the brand awareness for Contadina among the users to be double that of the non-users and estimated it to 60% and 30% respectively.

2. The major problem is to decide on the basis of market researches whether to launch refrigerated pizza in the U.S. market or not and if yes then whether to launch the ‘Pizza and Toppings’ option or the ‘Pizza Only’ option. 3. NRFC anticipates that the entry of new competitors in the refrigerated pasta market can cause the decline in its growth of the pasta market and therefore have to launch new product fast. 4. Kraft is expected to launch refrigerated pizza in about six months so the company has to launch its product well before it to enjoy the first mover advantage over any other competitor.

Our Analysis

The current position of the company can be analyzed by using the exhibits given in the case. The company conducted BASES market research and based on these findings they are trying to launch the new pizza range. 1. Exhibit 13, 14 and 15: From the all the three exhibits we can infer that “Takeout” pizza is the most popular pizza. a. The Pizza Kit lags behind by a huge margin on the following counts: 2

i. Taste ii. Crust iii. Special Meal b. The Assembled Pizza lags behind by a huge margin on the following counts: i. Lack of Customization ii. Soggy Crust iii. Taste factor iv. Special Meal c. Exhibit 15 clearly indicates that if the CONTADINA pizza is introduced in the market the market share of all the other pizzas already available decrease. 2. Insights from Exhibit 19,20 and 21 a. Among the Pizza and toppings & Pizza only, Pizza and Topping are a clear favorite. b. The concept interview for the Pizza only was very brief. c. An extensive behavioral study has been conducted on Pizza and topping. d. The likeability towards Pizza and toppings was unanimous amongst both users and non-users of Contadina Pasta, the same doesn’t hold true for Pizza only. e. In the pre product launch research of Pasta there is a lot of emphasis of the USP of the product which is not being replicated while launching the pizza.

f. The point of understanding the market perception with regards to the packing of the product at hand has not been taken care of in the case of pizza. 3. Insights from Exhibit 22 and 23 a. The survey sample for the In house testing was in complete agreement with the taste and convenience of Contadina Pizza. b. No improvement is required in the marketed product. c. The majority of the sample was in favour of the Pizza. d. The mean price of the Contadina Pizza and the delivered “Takeout” Pizza is almost similar which indicates that the product is competitively priced. 4. The success of Pasta can be attributed to the following reasons: a. First Mover Advantage b. Strong Research methodology adopted prior to launch c. Its refrigerated and not frozen d. Majority of the population was in favour of the concept e. Large variety f. Good Quality and Fresh g. Quick and convenient to make h.

Efficient Supply Chain Management

Recommendations

Should they introduce refrigerated pizza

On the basis of the exhibits and the calculated data, there is considerable market for Contadina pizza. NRFC should also make sure that it gives the maximum thrust to the taste of the pizza summed up with variety. In order to capture the significant market of frozen pizza, they should try to increase the shelf life of the pizza without compromising on the taste and quality of the pizza. Furthermore it should proceed with the development of the Pizza concept by exploiting the advantage which it enjoys in pasta regarding cost, quality and ease of production.

Also it should try to capitalize on the similar distribution and sales strategy as used for its flagship pasta. As we have seen from their success story with the pasta and sauces range, the first mover advantage holds very true in such ethnic yet highquality foods category and the demand for pizza in the US markets is very high. With news of Kraft also contemplating a refrigerated pizza product, our recommendation is that NRFC should go ahead with the introduction of the refrigerated pizza.

Which concept – Pizza kit or Pre-assembled Pizza

The market research shows that the positive purchase intent for the Pre-assembled pizza concept was 52% whereas the same for the kit was about 58%. However, pre-assembled pizza was likely to suffer from the production standpoint covering quality issues like the sauce and toppings infiltrating the crust. The kit option, on the other hand, by virtue of its component approach was highly feasible for uniform high-volume production fit for national distribution. Besides, the kit option could transfer the end-designing to the customers, where customers could try out different combinations for the end-product and that could render it a more home-made feel. Keeping these things in mind, our recommendation would be to continue with the kit option. However, since market research shows high positive purchase intent for the pre-assembled concept too, so if NRFC could do away with the corresponding quality and production issue, then it could have tapped the customer segment preferring the ready-to-eat version.

Which Pizza kit – ‘Pizza and Toppings’ or ‘Pizza Only’ On the basis of customer likeness (Appendix 1, 2 & 3) there is no significant difference among both the options. Rating for the likeness by both users and nonusers for both options is in the range of the 4-5. So our recommendation is that NRFC should come up with both of the options, that is Pizza and toppings and Pizza only kit (which is without additional toppings). There is no obvious price difference among these two options.

The kit and toppings option priced at $6.39 for kit and $1.29 for the toppings that make it $ 7.68 in total whereas the pizza only was priced at $ 6.39. It’s up to the customer choice which ever option she/he picks to satisfy her or his need NRFC should provide both the options at the market place. Besides, the Bases research indicates that only 50% of those favoring the Pizza and Toppings option would buy the toppings for every kit purchase and an additional 25% would purchase toppings half the time. So the Pizza Only option could also be an equally winning alternative as the Pizza with Toppings.

What should be the target market share

As per Stephen Cunliffe, they are targeting only 0.3% market share of the retail pizza market. However exhibit 15 shows that it could actually tap the frozen pizza market share comprising 16% of the total market, where respondents have rated frozen pizza lower on the attributes. Also exhibit 18 shows that the probability of replacing an old product for the news product is as high as 32% for the frozen pizza orders. Hence NRFC should target this frozen pizza segment also.

Getting the pricing right

The company has decided on a pricing of ($6.39+$1.29) i.e. $7.68 for the Pizza with Toppings option and $6.39 for the Pizza only option, whereas a 12” pizza at restaurants would typically cost around $8-$10. Exhibit 19 clearly shows that as high as 44% (for the pizza and toppings option) and 39% (for the pizza only option) state this as a major concern for disliking the new product as they found it too expensive when compared with the restaurant/takeout options. So this pricing has to be more competitive if NRFC wants to capture a better market share. Our recommendation would be that NRFC should not continue with the one-third margin that it kept with the pasta line and should decrease its margin so that the price remains within $5.5 – $7 as then it could garner a favorable pricing perception as is evident from Exhibit 24.

Positioning and Advertising

The product should be supported heavily with aggressive advertising campaign as this would be one of the most crucial steps if the product launch needs to meet success. Exhibits 19 and 23 shows that NRFC should focus on the following attributes to position Contadina Pizza: ‘Fresh Pizza tastes better, ‘Quick/easy to prepare’, ‘Variety of toppings’, ‘Good reasonable Price’ and ‘Crispy crust not soggy’. Contadina as a flagship brand is well known for its fresh and tasty easy-to-cook pasta. This can be factored in to leverage the brand awareness and brand equity. Suggested Tag Line for Pizza & Toppings: “The makers of Contadina presents, a new offering of easy-to-make, fresh and tasty Pizzas with a wide variety of crusts and toppings”.

Suggested Tag Line for Pizza only: “The makers of Contadina presents, a new offering of ready-to-eat, fresh Pizzas in your favourite combination of crispy crust and tasty toppings”. In order to capitalize on the first mover advantage, it should launch a quality pizza product in the market before Kraft to repeat the success of Contadina Pasta and Sauce. First mover advantage here implies building the brand equity before it is being created by one’s competitor. A proper positioning would be very important for building this brand equity.

References
1. http://www.nestleusa.com/

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